Amazon to introduce virtual currency for apps and games. Amazon will give US customers over $10 million in free coins as part of the promo.

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Amazon today announced another new way for app and game developers to make money on Kindle Fire—introducing Amazon Coins—the new virtual currency for purchasing apps, games and in-app items on Kindle Fire. Amazon Coins is an easy way for Kindle Fire customers to spend money in the Amazon Appstore, offering app and game developers another substantial opportunity to drive traffic, downloads and increase monetization. When Amazon Coins launches in the U.S. this May, Amazon will give customers tens of millions of dollars’ worth of free Amazon Coins to spend on developers’ apps on Kindle Fire in the Amazon Appstore. Amazon will also make it quick and easy for customers to buy additional Amazon Coins using their Amazon accounts.

By printing money and putting it in the hands of Kindle Fire owners, Amazon will increase the demand for Kindle Fire content. More importantly, because Kindle Fire developers will expect higher future demand, they’ll have an incentive to invest in creating things for people to buy. It’s a developer subsidy, but with several advantages over Microsoft’s approach. For starters, since the subsidy directly passes through customers’ hands rather than being hidden from them, it builds goodwill and brand loyalty. More importantly, it avoids the problems with Microsoft’s central planning. The basis of competition is still who can make the apps people want to buy not who can talk executives into writing a subsidy check.

And the free money they'll be giving to users? It's "free" to Amazon.
Last fall they took out "loans" at rates that are lower than the inflation rate. So Amazon is going to stimulate the growth of the FIRE ecosystem with "Other People's Money". Danny DeVito would be proud.

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And where does the money come from? Let’s go back to those bonds. Amazon’s three-, five-, and 10-year bonds pay interest rates of 0.65, 1.2, and 2.5 percent respectively. That’s nothing. In fact, in inflation-adjusted terms, the three- and five-year bonds literally pay less than nothing. Apple is earning huge profits, then stacking the money up in a vault where its short-term securities earn less than inflation in today’s low-interest environment. Amazon, by contrast, is taking advantage of those low rates to skate by on razor-thin margins and even take on debt to strengthen its ecosystem. It’s a great strategy that other companies—and for that matter national governments—could learn a lot from.

When I read this, I could not help but think of the way that the Microsoft X-Box does business. For their store, you buy "points" cards and spend the points on games, game add-ons, and DLC. But it was also a way to fix prices. At one point, you could buy 2000 points for $20USD. Now, that same 20 dollars only buys you 1600. Rather than affecting sale content, it always felt more to me like a way to raise prices while gamers weren't looking. I wonder if it will work the same way with Amazon.

The Microsoft Points cards go on sale from time to time.
One advantage (for MS) is that the listed product prices (in points) can stay constant while the price of the points themselves can vary.
It is a low-overhead way of processing micro-transactions; good for the vendor.
The trick is making it good for a majority of consumers, too. For people without credit cards or concerned about system crackers it is a good thing.